Introduction to Stock Pitches

July 2023

Katie Richards Jenna Xu

Graduate – Chemicals Graduate – European Small and
katie.richards@berenberg.com Midcap
jenna.xu@berenberg.com
What is a stock pitch?
Definition and Aims

Definition:
A stock pitch is a verbal or written presentation that analyzes the potential of investing in a
public company. Stock pitches can both advise for and against the share of a company.

What scenarios are stock pitches used in?

Research Sales Investment Banking

• Initiation • Elevator pitch • Brokerships
• Morning ]meeting ]
• Longer pitches to • IPOs ]
• Speaking to investors clients

Your overall aim:

Present the key and most interesting parts of a company and its investment thesis in a fair
and balanced way.

2
How to pick a company?
Your aim when picking a stock (buy):

Fundamentals: Valuation:
- Ideally outgrowing the - Multiples – ideally cheap
industry average growth rate compared to its own history and
- Balance sheet – ideally low its peers
debt/ net cash or - Growth – good EPS CAGR
contextualise if not. - What are the blue/ black sky
scenarios?

Other considerations:

Set up: • Pitch a company you

- Performance – what has the share understand.
]
done YTD?
- Positioning – is it already a
crowded long? • Pitch something you
- Catalyst – what will get the shares
moving near term? enjoy!
3
Choosing a company
Know your audience and pitch accordingly

1. Consider the type of investor and their attributes

• Hedge funds
• Pension funds
• Risk tolerance
• Growth vs value
2. How is the investor trying to make money?
• Long vs short strategies.

4
Ratio Analysis
Applies for companies in the same sector

5
What to include in a presentation
Stock pitch structure

Recommendation – give the market cap, upside, whether the investor should be long/
short. Avoid Hold recommendations.

Company background – give a quick overview of the company’s products/ services

and how it makes money.

Investment thesis - 3 key investment points. Explain why the market is wrong/ what
they are missing.
Valuation – For a long recommendation, you need to show that the stock is
undervalued (e.g. right not it is trading at $50 and it could be worth $100). For a short
recommendation, show why the stock is overvalued.
Risks – 2-3 market and company specific events that could pose risk to your
investment thesis? Is the company doing anything to mitigate these risks?

Financials
Consider the stock
pitch length
Conclusion
6
Valuation Techniques
How do we arrive at a price target?

1. Discounted Cash Flow

(DCF)
Take the future expected cash
flows and discount it to get a
value today.

2. Comparable Company Analysis (Multiples)

• Common ratios: P/E, EV/EBIT, EV/EBITDA, EV/Sales.
• Compare against industry average or peer group.

Other techniques include comparable transaction costs and asset based methods …

7
Multiples
Similar companies in the same industry or single company over a period of time

Enterprise value
] debt – cash & cash equivalents
Equity value (market cap x no. of shares) + total

P/E
Price/ Earnings ]
High P/E – stock is overvalued or high growth rates
EV/EBITDA
Enterprise value/ earnings before interest, tax, ]depreciation & amortisation

EV/EBIT
Enterprise value/ earnings before interest & tax]

EV/Sales
Enterprise value/ sales ]
Usually used for companies with negative earnings

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Useful resources: Berenberg research portal
https://research.berenberg.com/

Search for a
company/ analyst/
specific report

Grouped by sector/
analyst

Top picks by
theme/sector

9
Useful resources: Sector comps sheets
https://research.berenberg.com/sector/1

10
 Heat Matrix
From Top Picks to Least Preferred names

Consumer /
Autos & new energy Niche industrial Diversified industrial Industrial gases Fertilisers Paints and coatings
synthetic biology

Johnson Matthey Fuchs Petrolub Solvay Linde Bayer Nutrien AkzoNobel

Buy – GBp 2200 Buy – EUR 42 Buy – EUR 135 Buy – USD 415 Buy – EUR 66 Hold – USD 49 Buy – EUR 83
Novozymes
Vulcan Energy Imerys OCI Sika
Buy – DKK 425
Buy – EUR 51 Lanxess Air Liquide Buy – CHF 300
Buy – AUD 7.0 Hold – EUR 28
Buy – EUR 56 Hold – EUR 165 Corteva
Buy – EUR 4.3
Elementis Buy – USD 68
CF PPG
Buy – GBp 170
Albemarle Arkema Avantium Hold – USD 65 Hold – USD 145
Air Products
Hold – USD 220 Buy – EUR 100 Hold – USD 300 Buy – EUR 4.7
Synthomer
Buy – GBp 140 Croda Sherwin-Williams
Yara
Umicore Buy – GBP 80 Hold – USD 224
Hold – NOK 410
Hold – EUR 30 BASF
Kemira Hold – EUR 54 DSM-Firmenich
Hold – EUR 18.5
Buy – EUR 135 Mosaic
Hold – USD 38
EMS-Chemie Covestro Lonza
Hold – CHF 640 Hold – EUR 40 Buy – CHF 605
K+S
AFYREN Hold – EUR 16.7
Wacker Chemie Buy – EUR 8.9
Hold – EUR 130 Evonik
Hold – EUR 22 Biotalys
Victrex Buy – EUR 8.8
Hold – GBp 1750
Corbion
Hold – EUR 30
Lenzing
Hold – EUR 60 Borregaard
Hold – NOK 145
Hexpol MOWI
Hold – SEK 110 Hold – NOK 225

SalMar
Sell – NOK 460

Source: Berenberg estimates

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Useful resources: Research Report
https://research.berenberg.com/sector/1

Includes information on:

• Company overview
• 3 investment points
• Valuation
• Peer analysis
• Management
• ESG credentials
• Financials

12
EUROAPI SA (EAPI FP)
BUY; PT EUR16.90
Market cap: EUR1,031m
Upside: +54%
YTD: -35%

27 April, 2023
Katie Richards

Vasiliki Kotlida
Analyst
+44 20 3207 7844
Vasiliki.kotlida@berenberg.com
EUROAPI
Company overview
What do they do? Key Financials

EUROAPI is a world leader in the manufacturing of Y/E 31/12 EURm 2021 2022
Active Pharmaceutical Ingredients (APIs) and has a Sales 900 977
Contract Development and Manufacturing Organisation EBITDA 111 120
(CDMO) division. Net Profit 18 -15

Y/E net debt (net cash) -20 26

Key Attributes EPS (recurring) 0.2 -0.16

Gross margin 17.0% 18.1%

Headquartered in France. EBITDA margin 12.3% 12.3%

EV/EBITDA - 13.2

Listed on the Euronext Paris in May 2022

following a carve out from Sanofi.
What is their revenue coming from?

6 production sites in Europe and a global network North America

of offices allowing it to be in close proximity to
Rest of Europe
clients. 6%
9%
No.2 in the overall API market and no.1 in the Asia
small-molecule API market. 10% Sanofi
46%

Highly specialized technological base, excellent

reputation and sufficient capacity to scale 28%
production. France
Source: Company reports, Berenberg estimates
14
EUROAPI
Company Structure
Contract Development and Manufacturing
Active Pharmaceutical Ingredients (API)
Organisation (CDMO)

Customised API development

Overview Supply of API solutions Manufacturing services for pharma/biotech
Regulatory advice

c165 API solutions

Details Ability to produce a further 35 APIs
55% of sales are differentiated APIs

Broadest offering in the industry Peptides/ oligos

Differentiator/
Niche/ differentiated molecules Hi-potency/ ADC linkers/ lipids
specialism
Non- differentiated molecules Complex chemistry

#7 currently
Market position #1 for small molecules
#5 ambition by 2025

Sales split c73% c27%

What is are Active Pharmaceutical Ingredients (APIs)?

Active ingredients are the substances in drugs that are

responsible for the beneficial health effects experienced by
customers.
15
 EUROAPI
Valuation
Share Price (EUR)
• DCF valuation yields a value of EUR16.9 per share, implying 54% 19.00
upside. 18.00
17.00
• Share price has fallen by 40% since its all time high in October 16.00

2022 due to: 15.00

14.00
1. An incident relating to Good Manufacturing Practices
13.00
(GMP).
12.00
2. Missing sales FY 22 sales guidance.
11.00
10.00
• Trades on 6.8x EV/EBITDA for 2024, a 60% discount to its peers. 9.00

• Currently lower margin compared to its peers due lower utilisation

rates.

Company Market Cap P/E EV/EBITDA EBIT Margin FCF Yield Sales Growth

2023 2024 2025 2023 2024 2025 2023 2024 2025 2023 2024 2023 2024 2025

EUROAPI 1,031 23.0 15.0 11.0 8.3 6.8 5.2 6% 9% 11% 1% 4% 7% 7% 7%

Bachem 7,185 57.1 43.8 36.7 37.2 28.4 23.4 30% 32% 33% 0% 0% 12% 27% 20%

Lonza 44,302 38.1 29.9 25.0 21.8 18.0 15.6 30.1% 32.5% 33.4% 0% 1% 8% 13% 12%

PolyPeptide 669 47.2 23.7 14.9 13.2 9.0 6.7 16.3% 20.6% 24.1% -2% 0% 9% 15% 16%

Siegfried 2,959 21.3 19.2 17.4 13.1 11.8 10.8 20.8% 21.7% 22.2% 3% 3% 12% 7% 7%

Average 40.9 29.2 23.5 21.3 16.8 14.1 24.4% 26.8% 28.3% 0% 1% 10% 15% 14%

Discount/Premium -44% -49% -53% -61% -60% -63% -18.4% -17.8% -17.3%

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EUROAPI
Investment Case 1 – Leading API developer in a growing market with differentiated APIs

Leading API developer

• EUROAPI is no.1 in the small molecule API market and no.2 in the overall API market.

Growing market
• The API market is currently worth USD180bn and is expected to grow at 5-6% CAGR from 2023-2028.
• Growth due to the increased prevalence of chronic conditions, increased R&D investments and expiry of patents.

Differentiated APIs
• EUROAPI is unlike other API manufacturers which produce low-cost commoditised products.
• EUROAPI generates 55% of its sales from highly differentiated APIs where there is less competition and high
manufacturing standards.

We forecast a 7% sales CAGR from 2023-2026 Pharmaceutical company R&D investments are increasing
100
90
80 4%
70
+9
60
50
40
30
20
10
0
2016 2021
17
Source: Company reports, Berenberg estimates
EUROAPI
Investment Case 2 – New focus on CDMO division will accelerate growth further

Shift towards CDMO division Positive CDMO revenue evolution

80%
• EUROPI is shifting its focus onto its CDMO business due to
70%
the higher growth available in this area and higher margin 73%
60% 68%
opportunities.
50%
• This division will achieve above market growth of 12% a 40%
year due to increased demand for larger molecules. 30%
32%
20% 27%
10%
0%
2022 2026E
API CDMO
Growth in large molecule division

70%
Evidence this shift will be a positive one…
60%
50% 1. Impressive number of requests for proposals (RFPs). 79
40% CDMO projects in the pipeline for the next 2 years.
30%
2. EUROAPI won 41 new contracts in 2022 other than its
20%
original Sanofi agreement.
10%
0%
2022
Large molecules HP-APIs 2026E 3. FY22 results: new projects won grew by 75% compared to
Fermentation Complex chemistry the previous year.

18
Source: Company reports, Berenberg estimates
EUROAPI
Investment Case 3 – Margin improvement due to CDMO focus
Core EBITDA margin will increase from 14% to 20% by 2026

• The CDMO business is higher margin than the API arm due 250 20%
to the higher risk involved. 18%
200 16%
14%
• A large proportion of contracts are being signed for highest 150 12%
margin Phase 1 and Phase 2 projects. 10%
100 8%
• EUROAPI aims to become the trusted partner for the whole 6%
50 4%
development process up until the drug becomes
2%
commercially available. 0 0%
2021 2022 2023 2024 2025

EBITDA (lhs) EBITDA margin (rhs)

Higher profit margins during the early stages of drug

Spread of the new contracts EUROAPI has recently signed
development
40
35
30
25
20
15
10
5
0
Phase 1 & earlier Large molecules
Phase 2 Phase 3
Biochemistry Commercial phase
HP-APIs Complex chemistry
19
Source: Company reports, Berenberg estimates
Appendix - EUROAPI
Relationship with Sanofi

• Sanofi decided to spin off EUROAPI as part of its “Play to Win” simplification strategy which aims to focus on the
company’s core business and boost profitability.

• Sanofi currently accounts for 48% of EURAPI’s revenues, but EUROAPI aims to reduce dependency on this
partnership towards 30-35% by increasing its collaboration with other clients.

• Currently EUROAPI and Sanofi have entered into a Manufacturing Supply Agreement (MSA).

Acceleration in the number of Request For Proposals (RFPs) Reasons Sanofi’s declining contribution is not a concern:

1. EUROAPI has sticky relationships with its current clients.

• 75% of APIs purchased by clients can only be bought
from Sanofi.
• Most clients have been with EUROAPI for >20 years
and the churn rate is less than 1% a year.

2. Strong progress in accepting new clients.

• 79 CDMO projects active in 2022 compared to 45 in
2021.
• The number of incoming RFPs increased from 120 in
2021 to 230 in 2022.
20
 Appendix - EUROAPI
Risks

• Sanofi currently accounts for 48% of EUROAPI’s total revenue, but this is expected to decline
Termination of the to 32% by 2026.
Sanofi agreement
• Inability to win new contracts could lead to significant declines in revenues.

Entry of new • EUROAPI is part of a fragmented market with c3,000 players globally.
competitors could • Most other competitors specialise in low-cost APIs, so we do not view them as a threat.
threaten leading • Larger peers and PE firms have recently embarked on a consolidation spree by acquiring
position competitors facilities and could threaten EUROAPI’s leading position.

• EUROAPI has a global network of development and manufacturing sites that can
accommodate most phases of production at all sites.
Operational issues
• The highest growth area of the portfolio, peptides and oligonucleotides is only offered in
Frankfurt, Germany.

EU onshoring • European governments have recently proposed measures and offered initiatives to support
incentives not local API manufacturing, and minimise the reliance of procurement from abroad.
materialising • There is a risk these propositions may not materialise.

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Appendix - EUROAPI
Other Useful Charts
Ownership Structure Advantages of outsourcing services to CDMOs

30%

Protect
52.5% profitability

12%
Regulatory
Expertise
5.5% knowledge
Sanofi EPIC BPI France L'Oreal Free Float

Advantages of
Most clients buy from one source (in the API division) CDMOs

Removes
Economies of
need for site
scale
25% transfers

Improved
time to
market

75%

Monosourcing Multisourcing

22
 Appendix - EUROAPI
Peer Group Analysis
Company Market Facilities Specialisation 2022 Sales Split Fermentation
Cap

1,031 6 in Europe Small molecules 66% Complex chemistry

Peptides 15% Biochemistry
Oligonucleotides 10% Large molecules
8% HP- APIs
7185 3 in Europe Peptides 56% Commercial API
2 in North Oligonucleotides 35% CMC Development
America 9% Research &
Specialities

44,302 18 in Europe Small molecules 51% Biologics

21 in America Biologics 23% Capsules & HI
12 in Asia & 15% Small molecules
RoW 11% Cell & Gene

669 3 in Europe Peptides 50% Custom Projects

2 in America Oligonucleotides 39% Contract
1 in Asia manufacturing
11% Generics

2,959 8 in Europe Small molecules 61% Drug substances-

2 in America APIs
1 in Asia 39% Drug products

23
 Appendix - EUROAPI
Management Team

CEO: Karl Rotthier CFO: Antoine Delcour COO: Eric Berger CDMO: Cecile Maupas

• 29 years experience in • Previously CFO of • Held positions at • Previously Head of

the pharma industry. Sanofi Active Roussel Uclaf, Synkem, CDMO at Sanofi since
• Led several spin-offs Ingredient Solutions. Aventis, Genzyme and 2020.
previously. • Previously worked at Sanofi. • Previous roles at
• Held positions at Unilever and • Masters degree in Healthcare Life
Centrient Shlumberger. chemical engineering, Sciences, Novasep.
Pharmaceuticals, • Masters degree in biotechnology, • Masters in
DSM, BASF. Applied Biology and biochemical Biochemistry.
• MBA from Vlerick Industrial Processes. engineering.
Business School.

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Appendix - EUROAPI
Revenue by Product Type
Revenue breakdown by product type Restated Restated Restated E E E E E
2019 2020 2021 2022 2023 2024 2025 2026

Complex chemical synthesis molecules 607.8 663.7 589.3 647.7 684.0 725.0 768.5 822.3
yoy% 9% -11% 10% 6% 6% 6% 7%
% of sales 68% 70% 65% 66% 66% 65% 64% 64%

Biochemical molecules derived from

fermentation 161.3 189.6 154.4 148.3 154.2 160.4 167.6 176.0
yoy% 18% -19% -4% 4% 4% 5% 5%
% of sales 18% 20% 17% 15% 15% 14% 14% 14%

HP-APIs 110.1 79.6 101.5 82.2 86.3 90.6 95.2 99.9

yoy% -28% 28% -19% 5% 5% 5% 5%
% of sales 12% 8% 11% 8% 8% 8% 8% 8%

Large molecules (peptides and

oligonucleotides) 12.4 21.9 54.7 98.4 116.1 137.0 161.7 194.8
yoy% 77% 150% 80% 18% 18% 18% 21%
% of sales 1% 2% 6% 10% 11% 12% 14% 15%

Total 892 955 900 977 1,041 1,113 1,193 1,293

7% -6% 9% 7% 7% 7% 8%

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Appendix - EUROAPI
Berenberg vs Consensus
FY
Berenberg
EURm 2023E 2024E 2025E
Sales 1,041.0 1,113.0 1,192.8
yoy% 7% 7% 7%
Core EBITDA 144.8 169.6 210.9
Core EBITDA
margin % 14% 15% 18%
Net income 45.1 69.8 98.3
yoy% (4.0) 55% 41%
Consensus
Sales 1,044.0 1,126.0 1,192.0
yoy% 8% 6%
Core EBITDA 130.0 167.0 210.0
Core EBITDA
margin % 12% 15% 18%
Net income 43.3 69.6 101.4
yoy% 61% 46%
Difference vs consensus
Sales 0% -1% 0%
Core EBITDA 11% 2% 0%
Net income 4% 0% -3%

26
Appendix - EUROAPI
Income Statement

27
Appendix - EUROAPI
Balance Sheet

28
Appendix - EUROAPI
Cash Flow Statement

29
Appendix - EUROAPI
Share price performance (EUR) Updated 2022 revenue guidance:
the company updated net sales 2022 Earnings: sales of
reaching c€980m. EUR976.6m reported.
EUROAPI supports Sanofi's
Good Manufacturing Practice Sales guidance for 2023: the
20.00 mRNA vaccine platform: 6,000,000
Incident company expects net sales to
EUROAPI announced that it
had expanded its collaboration increase by7-8%.
with Sanofi to support their
18.00 mRNA vaccine platform with
the development of lipid 5,000,000
nanoparticles.

16.00
EUR18m investment into 4,000,000
new equipment: for The
new equipment was
14.00
installed at the Frankfurt
site to meet the growing
3,000,000
CDMO demand for
2022 revenue guidance:
peptides and
12.00 the company expected
oligonucleotides.
Consolidated net sales of
around €1bn. Investment of €40m into more
efficient and sustainable 2,000,000
10.00 production in France: new
vitamin B12 production technology
to increase its manufacturing
capacity by 2025. €7.9m donated
1,000,000
8.00 by the French Government.

6.00 0
2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 3 3 3 3 3 3 3 3 3 3 3 3
-2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2
ay ay ay Jun Jun Jun Jun Jul Jul Jul ug ug ug ug Sep Sep Sep Oct Oct Oct ov ov ov ov Dec Dec Dec Jan Jan Jan Jan Feb Feb Feb ar ar ar Apr Apr
M M M A A A A N N N N M M M

Volume [no. of shares traded] (rhs) Price (lhs)

30
Source: Company reports, Berenberg estimates